Weakening of ETS raises taxpayers' liabilities
PATTRICK SMELLIEPATTRICK SMELLIE
Opinion & Analysis
Only the brave wade into debate about the emissions trading scheme. Like the theory of relativity, the concepts are elusive, the details even more so.
But when it comes to New Zealand's ETS, there are really only two things to understand.
Firstly, it's weak.
And secondly, contrary to National Party policy before last year's election, proposed changes to weaken it further are the polar opposite of "fiscally neutral".
The ETS is weak because the rest of the world is weak on climate-change action. Fair enough.
But it will now be so weak that the Parliamentary Commissioner for the Environment, Dr Jan Wright, describes it as "little more than a framework now".
The changes in the Climate Change Response (Emissions Trading and Other Matters) Amendment Bill, now before the finance and expenditure select committee, are far greater than the Government's own ETS review panel recommended last year.
They leave transitional arrangements in place for heavy emitting industries indefinitely, make no provision for agriculture even to enter the scheme, and remove the requirement for regular independent review.
If the implied lack of local action on climate change isn't worrying enough, this slow whittling away of the ETS is storing up a huge bill for taxpayers.
Wright put a $330 million direct additional cost over the next four years from leaving in place indefinitely what she provocatively called "big polluter subsidies" - calculated at a current, rock-bottom carbon price of $6 a tonne. If calculated at the $25-a-tonne upper limit imposed in the transitional ETS arrangements, that cost blows out to $1.3 billion. Those sums arise because they're carbon emissions which industry would have paid for, but won't now have to.
That may sound bad enough. But new analysis by Simon Terry at the Sustainability Council shows how this is just the tip of the iceberg. Taxpayers can expect to face costs of perhaps $2.3b by 2020 for the purchase of carbon credits, assuming carbon at $25 a tonne.
At equally possible prices of $50 or $100 a tonne, that cost could rise to $4.7b and $9.4b respectively by 2020. Beyond that, Terry uses the scant information released by officials to calculate that between 2020 and 2050, New Zealand's carbon emissions could be over 140 per cent above its target in 1990.
Since the country's stated goal is achieving emissions that are 50 per cent below 1990 emissions by 2050, that's a big gap.
The blowout could be worse, if the chilling effect the ETS changes are having on plantation forestry persists. Forestry is the valve through which New Zealand hopes to relieve its mounting carbon obligations, but policy decisions keep knocking the sector sideways.
Government MPs can and do argue no such liability exists. But that's sophistry. The fact there's no international agreement yet in place for carbon reductions beyond the end of this year is irrelevant.
No-one seriously believes there won't be a carbon market in the future or that the carbon price will stay this low once the carbon glut from the dysfunctional European Union ETS is digested in the next few years.
It's equally irrelevant to insist the taxpayer is suffering revenue forgone rather than a "cost". The Government needs that revenue to pay for the yawning liabilities that will emerge when massive plantation forests are felled in the 2020s.
Granted, such forests may be replanted to sequester carbon again, but the long-term arithmetic is for serious fiscal pressure created by failure to account for carbon liabilities.
That problem is made all the worse, critics of the ETS amendments say, because New Zealand is alone among the 30-plus countries with some sort of ETS in allowing foreign carbon credits to offset all domestic carbon liabilities. In Australia, a 50 per cent cap has been imposed.
In the European Union ETS, the 27 member states have an average cap of 20 per cent. This is intended to encourage investment in local action to combat climate change.
Without it, New Zealand lacks any incentive to act at home.
Whether that's what happens remains to be seen. Supporters of the reforms, such as Business NZ, say artificially priming demand for New Zealand units would do nothing except compromise the principle that emitters should be allowed to choose the "lowest cost of abatement".
Given global carbon prices are at present driven by politics rather than market forces, they argue incentives to invest in green technology, energy efficiency and alternative energy must come from somewhere other than the ETS. They may be right. But that doesn't deal with the looming bill for taxpayers from the ETS in the next decade.
For a government seemingly determined to improve the crown balance sheet, carbon obligations are emerging as a massive blind spot.